House of Fraser set to grow after lending overhaul

Mar 16 2010 by Peter McCusker, The Journal

DEPARTMENT store chain House of Fraser said it was ready for the next stage in its growth plans after securing an overhaul of its lending terms.

The group, which has 62 stores in the UK and Ireland, wrote to suppliers confirming it had successfully changed its banking agreements to allow it to ramp up expansion after seeing a recent surge in sales and earnings.

Same-store sales have leapt by more than 10% in the five weeks since the end of January, according to House of Fraser.

The group saw earnings rise by more than 20% in the year to January 31, thanks to a strong second half after focusing on more profitable in-house brands.

There had reportedly been concerns over news a month ago that it was seeking to relax its banking terms, while credit insurer Atradius had not reinstated cover for suppliers after withdrawing insurance around 18 months ago.

But in a letter to suppliers, House of Fraser chairman Don McCarthy said lending agreement changes would give it more room to grow.

He wrote: “House of Fraser has received overwhelming support from our lending group that will enable the group to move forward with the next phase of our growth strategy.”

Expansion aims include moves to increase its online capabilities and in-house ranges, with the addition of labels such as Biba and Pied a Terre in womenswear, while continuing with an extensive store refurbishment programme.

It is also set to open its first store in the Middle East under a partnership with Retail Arabia International.

The inaugural outlet will launch in Abu Dhabi in 2012, with potential for others in Cairo, Riyadh, Jeddha, Dharan, Muscat and Doha.

House of Fraser began life in 1941 as the drapery business Fraser, Sons & Co in Glasgow and was bought by a consortium led by the now defunct Icelandic retail investor Baugur in a £351m deal in November 2006.

The group was part of an extensive portfolio of British businesses backed by Baugur before it collapsed, with Baugur’s 33% stake reverting to fellow Icelandic bank Landsbanki.

House of Fraser’s original lending agreements were said to have been out of date and restrictive to its ambitious expansion plans, although it is not thought to have been close to breaching any covenants.

The retailer has been paying off its debts and said repayments were ahead of schedule in the last financial year, with hopes that it will continue reducing debts at a rapid pace over the next 12 months.

Mr McCarthy told suppliers the firm’s “key strategic initiative remains to be focused on our ‘house brand’ development and the further expansion of our multi-channel business”.

House brand sales rose by 30% over the second half and 50% in the first five weeks of its new year, although it also claimed positive like-for-like sales growth across concessions.